Scenario 5-1
Suppose that the supply of aged cheddar cheese is inelastic,and the supply of bread is elastic.Both goods are considered to be normal goods by a majority of consumers.Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-1.The price elasticity of supply for bread could be
A) -1.
B)0.5.
C)0.
D)1.5.

Question

Quizplus · Accepted Answer

The price elasticity of supply for bread is likely to be higher than 1 as it has been stated that bread has an elastic supply. Therefore, a 10% decrease in demand will lead to a more than 10% decrease in the price of bread. A possible value for the price elasticity of supply for bread could be 1.5.

Scenario 5-1 Suppose That the Supply of Aged Cheddar Cheese Is Inelastic,and